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Newsletter | December 2016, Issue 4
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INSURANCE
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Does the Insurer Have to Pay Accidental Death Benefits for Deaths by Suicide If Statutory Claim Period Lapses?
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On September 30, 2016, Kim & Chang successfully defended an insurer client in obtaining a Supreme Court decision that an insurer is not obligated to pay accidental death benefits for suicide deaths of a covered person after the statutory claim period has expired, thereby barring the claim from recovery.1
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Case Details:
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| 1. |
Whether the Statute of Limitations Lapsed
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In July 2006, a certain covered person under the subject life insurance policy committed suicide. In May 2004, the covered person had concluded a whole life insurance policy with an accidental death rider (which included exclusion of deaths resulting from suicide and its restrictive clauses). It was not until August 2014 that the husband of the covered person, a named beneficiary under the life insurance policy, filed a claim for accidental death benefit under the foregoing rider. The insurer paid the general death benefit under the policy’s standard terms and conditions.
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Supreme Court’s Holding: The statute of limitations (“SOL”) for an insurance claim expires two (2) years from the date of an insured accident unless any special circumstances exist, thereby suspending or tolling the period to timely file a claim. Here, the SOL for the insurance claim had already expired.
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| 2. |
Whether the Insurer’s Statute of Limitations Defense Constituted Abuse of Rights
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To assert that an insurer’s life insurance claim is barred due to the lapse of the SOL is contrary to the principle of good faith to be afforded by insurers to claimants which constitutes an abuse of rights by insurers and there must be special circumstances. Examples of such exceptions include: (i) insurer’s conduct made it impossible or substantially difficult for the claimant to exercise his/her right to insurance benefits or to toll the running of the SOL; or (ii) insurer’s conduct caused the claimant to believe that such exercise of rights or tolling of the SOL was unnecessary.
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Supreme Court’s Holding: In applying the rule to the facts of this case, the Court concluded that no such special circumstances were found to exist between the insurer and the claimant. In its reasoning, the Court also stated that it is difficult to find that the insurer’s assertion of the lapse of the SOL presumptively constituted an abuse of rights solely on the ground that the insurer had refused to pay the life insurance proceeds for the suicidal death of the covered person, despite its obligation to cover such event under the subject rider.
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Further, the Supreme Court held that a finding of an abuse of rights pursuant to the exercise of the insurer’s right of defense under an applicable SOL should generally be avoided. In explaining its position, the Court stated that: (i) the purpose of the SOL is to bring finality to a dispute between parties by subjecting legal claims to a fixed date once the prescribed period has expired; and (ii) that the lapse of time should apply indiscriminately and objectively to any person for legal stability.
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Significance / Impact
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Since the Supreme Court’s May 2016 decision which held that an insurer is obligated to pay accidental death benefits for suicide deaths,2 the insurance industry sought clarification on whether the insurer’s obligation to pay would extend to those claims even after the lapse of the SOL. In this regard, the September decision is meaningful as it confirmed the importance of upholding the policy, and the application of the SOL.
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In the cases that followed, the Supreme Court has consistently ruled that an insurer was not obligated to pay accidental death benefits after the lapse of the SOL. In so doing, the Court has solidified its position that an insurer is not also responsible for payment of damages even when it had not provided any further explanations as to why a claim had been denied.
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| 1 |
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Supr. Ct., 2016 Da 218713, Sep. 30, 2016
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| 2 |
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Supr. Ct., 2015 Da 243347, May 12, 2016.
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